The merit of a Pre-emptive strike

The current economic data point to the fact that the first quarter of 2013 will produce difficult challenges for all. As domestic budgets are ever more squeezed this will impact on businesses across the board.

With the new year soon to be upon us this is an appropriate time to conduct a top to tail analysis of your business.

Undoubtedly there are areas which would benefit from some radical adjustments/ change of direction. The consequence is not acting now could have very negative effects in the next few months.

Now is the opportunity to tackle difficult issues rather than adopting an ostrich "head in the sand" attitude.

When trying to explain the outcome of a disastrous strategy to your Shareholders or Bankers it will be of little comfort to trot out the tired old defence “it seemed like a good idea at the time”.

 

The New World Order

One of the staples of the Hollywood B movie was the Mad Scientist working away in his laboratory desperately trying to engineer a monster or come up with a powerful formula which would lead to world domination. Inevitably all these grandiose plans ended in failure and the world carried on as before.

Fast forward to today’s world and the threat originates from a different source, best described as the Mad Banker. Working away not in laboratories but behind banks of computer screens these would be Masters of the Universe were also trying to control the world through their own form of financial engineering.

 

By developing trading instruments and programmes of ever increasing complexity they created monsters which just like Dr Frankenstein they could not control.

The results of these spectacularly flawed experiments are now clearly visible. Last week the boss of RBS advised shareholders that problems are still emerging from the financial crisis leading to further write off in the coming months.

The greatest irony of all is that despite all the evidence of their incompetence and sheer recklessness any business seeking additional funding to expand their business finds that they are in thrall to the very architects of the disaster – the Bankers.

 

Forging effective partnerships

All too often the focus on the current economic background is negative. However one of the benefits emerging from the current business climate is the value that can be placed on a mutually beneficial Customer/ Supplier relationship.

As increasing numbers of business operate on a just in time inventory basis it is vital that a good understanding exists between supplier and Consumer.

In as much as a Supplier will be prepared to go the extra mile to ensure that his Buyer receives his goods on time and in good order so it behoves a Buyer to ensure that he pays as required and is not abusing the goodwill of his Supplier by “pinching” some extra period of credit.

If both parties work together in a professional and commercial manner then it will strengthen the relationship and both will emerge from the current difficult situation with a renewed confidence in each other and a better based business for the long term.

 

Multichannel marketing

The retail sector is facing particular challenges at present with the survival of many outlets resting upon the results of their Christmas trading. 

Much talk in recent times has focussed on the demise of the traditional British High St. with 30 shops a day closing down. There is a tendency to feel that all would be well if instead of the plethora of Charity shops, Discount Retailers and Pay Day Loan outlets they were to be replaced by Butchers, Bakers & Candlestick Makers.

In reality there is no going back to this perceived “Golden Age”. The new buzz word in retailing is "multichannel", loosely defined as a strategy that involves selling through stores, websites, mobile phones, catalogues, social networking sites, et cetera. Basically it is an all encompassing process designed to maximise sales revenues.

Not all business models can embrace this system but there has rarely been a time when the old adage of “work smarter” has been more relevant. As more and more obstacles are thrown up to threaten operating margins everyone in any commercial organisation must ensure that they are operating at optimum efficiency. 

Whilst many Retailers are pinning their hopes on “multi channelling”, they are not the only sector having to radically re-think strategy in these turbulent times. 

The inability to adapt to the requirements of the changing market place will inevitably see many companies joining the long list of corporate failures in the months ahead.

 

Make customer service your USP

 

We are operating in times when everyone expects ultimate value for their cash be it the corporate customer or the man in the street.

It is a paradox that as times become tougher and business harder to win the level of service offered by many Suppliers is falling very short of acceptable standards.

From the frustrations of automated answering (devised surely to test anyone’s patience to the ultimate degree) to the failure to meet agreed delivery schedules Customers are left feeling that their business is not valued.

Little wonder that they choose to vote with their feet. Customer service is not a difficult act to pull off – in reality all that is required is to give the Customer the feeling that their business is important and they are valued not just “one of a number” or even worse a nuisance.

Those businesses that master the art of Customer service will emerge from this current difficult period all the stronger.

Keep ahead of the game

 

Running a business in today’s environment is a complex affair – it has been likened to playing 3 D Chess.

Particularly for the owners of SME’s it has never been harder to keep track of the various elements which are buffeting the business.

Now might be an appropriate time to run a check over those areas of the business most likely to cause problems in the coming months.

It is a self evident truth that many a crisis could have been averted by timely intervention. This is where an independent appraisal can identify areas of potential concern but more importantly the ways and means by which to address them.

The question that needs to be answered initially is – are we positioned securely?

 

Time to lighten up

There is growing concern amongst the retail sector that the Christmas sales boom is not materialising and we are seeing clear cut evidence that Consumers continue to reign in their spending. Without doubt now is the time to tackle potential problem areas with some effective housekeeping.

One of the first areas for scrutiny is the level of inventory which you are carrying. Make sure you are achieving the best level of Stock Turn and that you are not carrying any obsolete Stock. Rather than face a “fire sale” it may well be prudent to lighten up now with some innovative marketing strategies.

How is your Company’s cash position? With the ominous backdrop surrounding financial institutions and Governments alike, don’t expect the Banks to readily provide additional finance- it is an absolute priority to maintain positive cash-flow and this can only be achieved by keeping Debtors under control.

Undoubtedly, the casualty rate will climb in the early weeks of 2013 – now is the time to do everything you can to ensure that your Company doesn’t become part of these statistics

 

Turnover vanity, profit sanity, cash-flow reality

More than ever, all businesses operating in today’s climate need to have constant and rigorous focus to their commercial exposure.

 

Against the current competitive background it is very difficult to contemplate turning away business especially from a customer of long standing.

However as business conditions remain difficult we are witnessing a growing trend for companies to squeeze suppliers in various ways. This can take the form of a decision to arbitrarily extend payment terms, decide not to take up previously agreed deliveries or introduce respective price discounts.

From a suppliers perspective this erosion of operating margin means that in some instances the best business decision was to leave it to your competitors.

When stricter controls are in place over such elements as payment terms and credit limits the result is likely to be a reduction in turnover.

The upside of such fiscal discipline carries its own rewards. Avoiding defaults by customers is the surest way to protect the company’s bottom line at a time when profits are hard won and losses easy to establish.

 

Triple AAA Rating – the failure rate continues to climb

Every business transaction contains an element of risk, yet at the same time how satisfactory are the mechanics for managing risk?

In recent years we have witnessed just how costly the laissez faire attitude to risk and burgeoning debt has been for many institutions be they large corporations or smaller SME’s.

In the never ending quest for larger profits many of the saner measures of business were abandoned. An analysis of recent disasters from the subprime fiasco in the US through to the Greek Debt debacle all have one common denominator – the architects of these calamities went hurtling over the cliff like lemmings.

The UK is now forecast to be close to losing its Triple AAA status with most forecasters still failing to properly capture the negative impact of "deleveraging" - or households, businesses, banks and the government trying to cut their big debts – coupled with a serious risk of a further worsening in the Eurozone's mess. Against this back drop it is questionable whether even the anaemic recovery expected by the Office for Budgetary Responsibility in 2013 will take place.

A forensic analysis of your company’s current Debtors Book at this time might make for uncomfortable reading but like most unpleasant tasks it should not be ducked.

Better to take remedial action such as a write down whilst you are in control of your own destiny rather than have a 3^rd Party appointed to do it for you.

 

The price of denial

How often do we ignore the obvious and subsequently ask ourselves “why did that go wrong?”

A large number of companies fail to address problem issues early enough to avoid an oncoming crisis.

The signs of a troubled business are all too apparent – these include lack of controls, lack of strategic vision, a demotivated workforce and obsolete or valueless stocks etc

Instead of grasping these nettles, often the preferred option is to engage in a totally pointless exercise such as a rebranding campaign or the launch of another product range destined to fail for the above reasons.

The operating style of many doomed companies can be likened to Nero’s pastime of fiddling whilst Rome burns.

Don't get blind sided

 

From a company Manager’s perspective the recent market gyrations and latest pronouncements from politicians and economists alike have done little to calm nerves and now more than ever is the time for good housekeeping and firm controls.

Constant monitoring of counter party risk is the order of the day combined with disciplined inventory control.

Just because a customer has always being reliable in the past is unfortunately no guide as to future performance. Look out for tell tale signs such as unusual ordering patterns, delays in payments etc.

The coming months will continue to test but undoubtedly there will also be opportunities for those placed to take advantage of less efficiently organised companies.

Make sure that when the dust eventually settles that your company emerges in a stronger position.

 

Managing in challenging times

 

Working with companies over the past months I have noticed that there is an increasing sense of demoralisation amongst many sectors of the work force.

The causes for this are readily identifiable, many people are struggling with their own domestic finances whilst at the same time the need for increased levels of performance and efficiencies at work have rarely been as intense.

It is the responsibility of the Management to ensure that during these times Staff members are encouraged to give of their best.

Too many Managers are remote from the day to day activities of their Staff and appear to have the attitude that the people who report to them are lucky to have a job.

This mentality is counterproductive. Staff need motivating and incentives do not necessarily have to come solely in the form of financial rewards.

Some of the best run and therefore by definition most successful commercial entities are those where the workforce is engaged and feels part and parcel of the organisation rather than merely there to make up the numbers.

 

Financial legerdemain – nothing new

As we head towards the end of 2012 more reports are surfacing in respect of companies who have been camouflaging their poor performance with some suspect off-balance sheet shenanigans.

The latest example comes from the wrangle between the US short sellers Muddy Waters Research and the Singapore based commodity group Olam. At the heart of Muddy Waters' claims is how Olam values its assets.

According to the US firm, Olam now shows many of the assets as being more valuable than when it bought them. It has booked the difference in the purchase and as profit in its balance sheets.

However, it alleges that the difference in price is not because Olam acquired the assets at a bargain but because it revalued them at the time of acquisition.

The American company also alleges that some of the accounting practices adopted by Olam are uncannily similar to those followed by the collapsed energy giant Enron.

This is not an isolated event, think of the recent problems with losses incurred by various Banks.

However it highlights how vital it is that Senior Management set clear defined operational and reporting procedures.

In many companies the Directors simply do not have the understanding of the mechanics or the day to day activities of the business which they purport to run.

In trading environments it is not uncommon that totally unrealistic profit targets have been passed from Board level to trading departments. No cognisance having been given to the disproportionate risks which need to be taken to achieve these targets.

Some of the most spectacular financial flame outs have followed a period of ostensibly highly successful trading. In their desire to recognise these “profits” no thought were given as to how they were being made. In such times it would be well to take note of the old adage that is something looks to be too good it usually is!

If your company is bucking the trend in these difficult times it may well be that you are implementing a winning formula.

However history tells us that it is often a prudent course of action to look under a few stones – just in case.

Diversification the hardest trick to pull off

 

Without doubt one of the most difficult challenges a business faces is diversification. Very often a company is faced with the dilemma of diminishing revenue returns and a tired business model which is either irrelevant or obsolete.

Diversification is seen as the solution to this dilemma. However, the mechanism for achieving this objective can be particularly difficult.

The first step is examining why the current business model is not working. This requires an honest appraisal from the Management in respect of their own performance. Then the areas of diversification have to be closely considered, very often people plunge into businesses in which they have little knowledge or experience and the results pretty quickly show up these deficiencies. Thirdly one should always respect geography it may be very tempting to consider that there are opportunities just waiting to be picked up but to underestimate the advantage of local knowledge and conditions can again prove costly.

In essence diversification can provide the answer to a company’s need for increased revenue but without a clearly defined strategy it can equally provide another drain on an already embattled balance sheet.

 

Accepted Commercial Practice or Subliminal Warning?

 

The traditional response from recalcitrant Debtors was “the cheque is in the post”. This generally bought some time as generally Suppliers met this response with a weary resignation.

Times have moved on and the latest mantra is “its set up for next week’s payment run”.

Basically the name of the game remains the same, buy some time - achieve a payment extension thereby effectively squeezing the Supplier’s margin.

Obviously it is a difficult balancing act between keeping the customer happy and managing your own company’s cash-flow.

However, all the signs are that the last months of 2011 will be a particularly difficult period across all sectors – it will be vital to keep full control of receivables.

Delays in payment will impact on the bottom line, however the worst scenario is that neglecting to strictly monitor a failing company could result in a total write off.

 

Cranking up the profits

How do we boost the bottom line? – without doubt the most hackneyed question in business.

There are 2 obvious solutions, (a) Cut operating costs and (b) Boost Revenue. If you’re the FD you’ll probably aim for the double.

The Sales Director only has one shot in his/her armoury namely increase sales. Sales targets can always be raised but a sense of commercial realism also needs to be applied.

If you are marketing a totally unique product or service the task is easier but for the most part there are many companies offering a similar range of products in a broadly similar price range.

As such for most companies it is about getting back to the basics – ensuring orders are processed efficiently and in a timely fashion.

Following up on customer satisfaction, in short providing what in old fashioned terms was called “service”.

 

Tapping the barometer

Very often the best indicators are the least sophisticated. The UK economy remains in a very fragile state – the clearest evidence of this can be seen as you walk down any High Street.

The rising number and popularity of charity shops tell underscore that many families are struggling whilst at the same time the spectre of Administration looms large.

The UK Chancellor may have to extend the squeeze on public spending until 2018 if the recent deterioration in growth prospects and tax receipts turns out to be permanent, a think tank has said.

The Institute for Fiscal Studies said George Osborne may have to find another £11bn from tax rises or spending cuts if the economy does not pick up.

With many people continuing to struggle with debt and job insecurity it is hard to imagine a return to the heady days of consumer excess.

As the knock on effect percolate back down the chain many businesses will suffer.

External factors by definition are difficult to handle but at the same time in-house disciplines can at least provide some insulation.

Cash-flow will be very difficult to manage over the coming months so as always strict governance of Debtor and inventory control will provide some measure of comfort.

 

Spot the fault line

The Financial Services Authority (FSA) has fined UBS £29.7m ($47.6m) for failings that led to trader Kweku Adoboli losing £1.4bn.

The regulator fined UBS for "system and control failings" that allowed him to trade in London well beyond authorised limits.

The FSA, which conducted the investigation into failings at the bank with its Swiss counterpart, Finma, said there were serious weaknesses at the Swiss bank.

It said in a statement: "UBS failed to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems, and failed to conduct its business from the London Branch with due skill, care and diligence."

In the financial markets exotic trading products and programmes were created which like the Frankenstein monster quickly became uncontrollable. Risks were taken on an unprecedented scale and those supposedly monitoring risk were “asleep at the wheel”.

Recklessness was encouraged and became the default position. There were no checks and balances – it became for the participants in the so-called casino bankers a safe bet.

What’s the worst that could happen following a spectacular flame out?Maybe you lost your job and had to move to another bank or institution. Get it “right” and the rewards were sky high.

Whenever there is a bonus culture unless the supervisory systems are rigorous there will be potential for abuse.

Whether through greed or stupidity there will always be people willing to take potentially catastrophic chances.

What is required is that the senior management spend less time forecasting their own bonus and more time scrutinising the bottom line and understanding how results are achieved. Until this balance is in place disasters in the financial system will continue to occur.

KYC - know your customer

In the US this basically refers to a due diligence process undertaken by Banks and financial institutions to combat fraud, identity theft and general scams.

It is however a mantra that most organisations would do well to adopt.

Rapid advances in technology continue to transform the way we do business. Everyday business tools would have been regarded as flights of fancy not so long ago. With the unstoppable rise of e-commerce come challenges.

One of the biggest dangers is the lack of personal contact between a company and its customers. Obviously this is not an issue for online retaillers selling product over the net and being paid via a Debit card or Pay Pal etc.

However the is an increasing trend for B2B ales to be concluded by email and even SMS. With the loss of the personal contact the identity and customer relationship suffers.

The surest way to avoid problems is by knowing your customer and understanding their business.

This relationship and mutual understanding cannot be achieved via a key pad and electronic ordering system.

 

Local knowledge - a valuable resource

 

One of the most valuable commodities available to any organisation is local knowledge.

How many times has a venture ended badly owing to a basic failure to understand and deal with local market conditions? 

The UK is a mature and sophisticated market and though offering different challenges than for example operating in a 3rd World destination there are still obstacles in trying to establish a presence.

Operating overheads present a crucial challenge and this is where we can assist you to achieve a cost-effective solution to marketing your products in the UK.

Take a look at our website www.glbconsulting.co.uk

or check out our video link http://youtu.be/ruUtQnlJwVM

 

‘tis the season to be – focussed

 

In recent times there has been the tendency for the Christmas holiday season to stretch out over a number of weeks and therefore with just over a month to go to Christmas it would seem an appropriate time to consider the implications for business.

Without doubt of biggest concern to SME’s will be the impact on cash-flow. Many companies are operating very close to the edge and any delays in payment could have serious consequences.

In some instances invoices which fall due for payment after the 17^th December could well not be settled until the 3^rd January – giving an at worse scenario of 3 weeks delayed payment.

It would therefore seem prudent to look at your last half December receivables and make a realistic forecast of just how much cash will “come in”.

Similarly with “just in time” inventory it would be sensible to ensure that sufficient stock will be on hand for the early days of January when there will be inevitable disruptions to the supply chain.

Trying to get things done in the UK during the latter half of December will undoubtedly prove to be a challenging task so it would be best to ensure you take appropriate action now and are positioned accordingly.

A true and fair representation?

By: PETER SVENSSON (AP)

NEW YORKCopyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

40.7143-74.006

Hewlett-Packard Co. said that a British company it bought for $9.7 billion last year lied about its finances, resulting in a massive write-down of the value of the business.

CEO Meg Whitman avoided calling it a fraud, but said Tuesday that there were "serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation PLC."

HP is taking an $8.8 billion charge in its latest quarter largely to align the accounting value of Autonomy with its real value.

Whitman said Autonomy's financial illusion started to unravel after founder and CEO Mike Lynch left on May 23. A senior Autonomy executive then volunteered information about the accounting shenanigans, prompting an internal investigation, she said. 

The case has been referred to the U.S. Securities and Exchange Commission and the UK's Serious Fraud Office, she said. The company will also try to recoup some of the cash it paid for Autonomy through lawsuits. 

On a conference call with Whitman following the earnings report, analyst Ben Reitzes of Barclays Capital asked who will be held responsible internally for the disastrous acquisition. 

Whitman answered that the two executives that should have been held responsible — Apotheker and strategy chief Shane Robinson — are gone. But the deal was also approved, essentially, by the current board.

Quote most of the board was here and voted for this deal, and we feel terribly about that," Whitman said. "What I will say is that the board relied on audited financials. Audited by Deloitte — not 'Brand X' accounting firm, but Deloitte. During our very extensive due diligence process, we hired KPMG to audit Deloitte. And neither of them saw what we now see after someone came forward to point us in the right direction unquote.

The magnitude of this problem is huge but in itself it is not an unfamiliar scenario. 

Essentially there are many instances of conflict of interest such as taking on consultancy work for Clients and becoming too cosy with management teams. 

It is all too easy for companies to bully the young staffers sent in to do the grunt work.

For example what chance has a newly appointed auditor walking around a factory warehouse to adequate value stock? In reality they have to rely on the company for “valuations” and this can result in a totally inaccurate picture being presented. 

The validity of a company’s accounts reflects the integrity of the company which is being audited. 

As was demonstrated with the banking crisis in Spain an unrealistic valuation of the property portfolio either through deviousness or sheer incompetence ll ultimately had disastrous consequences.